Q4 2022 Newell Brands Inc Earnings Call

February 10, 2023

Yeah.

Good morning, and welcome to the new brands fourth quarter and full year 2022 earnings conference call. At this time all participants are in a listen only mode. After a brief discussion by management, we will open up the call for questions in order to stay within the time scheduled for the call. Please limit.

One question during the Q&A session.

Today's conference is being recorded a live webcast for this call is available at IR Dot Newell brands' Dot Com I will now turn the call over to Sofia fitness, Vice President of Investor Relations Ms. <unk> you may begin.

Thank you good morning, everyone welcome to <unk> fourth quarter and full year earnings call on the call with me today are Ravi solid Graham our CEO , Chris Peterson, our president and the newest member of the executive team Marc <unk>, our CFO before we begin I would like to inform you that during the course of today's call, we will be making forward looking statements.

Risks and uncertainties actual results and outcomes may differ materially and we undertake no obligation to update forward looking statements I refer you to the cautionary language and risk factors are available in our earnings release, our Form 10-K, cornerstone Q and other SEC filings available on our Investor Relations website for further discussion of the factors affect.

Forward looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP explanations of these non-GAAP measures are available.

Available reconciliations between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as the other materials.

Mr Relations website, Thank you and now I'll turn the call over to Ravi. Thank you Sofia.

Good morning, everyone and thank you for joining us on our year end call.

Fourth quarter results were in line with our expectations and were off to a close.

A difficult second half.

It does continue to be impacted by a tough operating environment, including slowing consumer demand for general merchandise categories as well as inventory reductions at retail.

Our team remains focused on executing our strategic priorities with excellence, while navigating these challenges they did a great job in reducing inventories in the fourth quarter and drove sequentially stronger cash flow performance.

For the year.

<unk> sales declined three 4% against a very demanding year ago comparator.

Our trial, 5% growth.

Volumes more than offset favorable pricing.

Yes stacked growth exceeded 90%.

Pricing and promotion business has delivered core sales growth in 2022.

Sales for the other businesses declined.

The company's courthouse and domestic consumption exceeded 2019 levels.

At home and outdoor categories, continuing to normalize from peak pandemic levels.

If I may get brands, such as rubber mate Sharpie paper mate Rubbermaid commercial products.

<unk> Expo Elba and capturing gas showed showed strength.

Despite a much tougher than anticipated operating in macro environment in 2022, which weighed heavily on the company's results.

We made tangible progress across a number of focus areas for us many of our iconic brands were recognized for their innovations for example, all stack install innovation good housekeeping screening and organization are all Graco won the <unk> Innovation award for childhood cyst.

With the breakout country coffee Caramel Road trip 285 standard propane was recently ranked by outdoor lab is the best part of our growth in 2022 in the U S. New innovation on the Mr. Coffee.

401 received the good housekeeping Beth can best Coffee awards.

Our latest innovation in writing elements pushes launched exclusively in Q4 at a major retailer.

Very strong results in three months it became the worlds top activity item outpacing supply and sales over three to one national launch of squishy used across U S. Retail will begin in late March 2023.

In April of 'twenty, two we launched new creative kitchen by unique efficient social media vehicle that allows us to take a panel approach to connect our brands across consumer lifeboats applications and bring curated content to target consumers, allowing them to repost.

Does their own followers.

We've seen a fourfold increase in engagement through our live presentations at a 90% higher click through rate dropped branded website sales trading your creative kitchen.

Second we continued to build operational excellence across the organization by transforming our supply chain for project Almond and automation and earlier this year, we announced the next major step in this journey as we are unifying our global supply chain and centralizing manufacturing, which we expect to drive meaningful Mark.

The improvement in the long term.

Third we made significant progress on complexity reduction ending 2022 with about 28000, skus as compared to approximately 36000 in 2021 and over 100000 in 2018 our.

Our revenue per SKU has more than tripled versus 2019, we will continue reducing skus.

And accelerate SKU productivity.

Fourth we drove another year of strong productivity savings and around 3% of Cogs, which in combination with pricing actions.

To mitigate the high single digit headwind from inflation.

Further accelerating our productivity efforts in 2023.

And last but certainly not least we advanced our corporate citizenship agenda as we can.

<unk> to galvanize, our employees to be a force for good.

We strengthened our people first one your culture maintains strong employee engagement at World class films and commitment to carbon neutrality by 2044 out of scope, one and two emissions across our global portfolio.

I'm also pleased to share.

Second consecutive year newer brands has been named Fortune's 2023 worlds most admired companies.

While we're proud of the operational achievements and believe we are a much more agile company. Today. We also recognize that the macros have put considerable pressure on our business, we have been taking proactive and decisive actions to effectively navigate the current environment, while positioning the organization for long term success.

In late January we announced project Phoenix, a major evolution in our operating model and a restructuring program that is expected to drive significant savings Phoenix will further simplify and strengthen our company by leveraging the scale and power of one year to optimize our cost structure and operate more.

Patiently.

Let me shed more light on project Phoenix, There are five key tenets first we will combine business units into three operating segments based on consumer dynamics and customer commonalities.

We will centralize our sales efforts for our top four customers.

We will go to a one new go to market approach in key international geographies.

Fourth we will centralize and unified manufacturing globally and.

And fifth we will strengthen key capabilities reduce duplication and enhanced role clarity and drive standardization of processes tools and measurement.

Okay.

We are bringing the food home fragrance home appliances, and commercial businesses under one umbrella and commercial solutions led by Mike Mcdermott segment CEO , Lisa Mccarthy has assumed a new role of Chief operating officer of the home business reporting to Mike <unk>.

Learning and development, which includes writing and baby is led by Chris for Cascade <unk>.

<unk> will continue to lead our outdoor recreation business.

Through this evolution, we will honor the differences and nuances among.

<unk> and unify around commonality is related to the consumer and customer, while leveraging our scale and enabling better opportunities for internal mobility.

Our iconic brands play a key role in the lives of nearly every U S household we expect the new operating model to unlock additional growth opportunities for the business over time.

We will leverage the power of our brands to meet consumer daily needs in and out of their homes through that made.

Just moments dedications.

Our international business remains an important priority for <unk> in 2023 call satisfy international increased five 4% significantly outpacing North America, despite the macro and geopolitical pressures as part of project Phoenix, We have continued to reduce international fragmentation.

By moving to a one year or go to market approach in key geographies, such as Australia, New Zealand, Latam, Japan, and as announced last fall, Canada. We're also evaluating the structure in consultation with the employee works councils in Europe . This should dramatically reduce fragmentation accelerated growth and profit trajectory.

For our international businesses overtime, and increased depth and breadth of our franchise outside the U S.

As part of project Phoenix in the U S. We're also moving to a one year old SaaS model for several of our top customers centralizing. These teams will simplify our customer interaction significantly improve the customer experience and strengthen our position as a best in class partner.

Hi, why deep and enduring relationships with key customers and are increasingly perceived as a valuable strategic partner.

Based on the success of project of it and in the spirit of one Neil we are moving to a unified global supply chain organization, which Chris will elaborate on later.

As we focus on optimizing our cost structure, we are taking decisive action on our real estate and our hybrid work environment with the opportunity to close or consolidate offices and adopt new ways of working we just announced closure of our corporate offices in bulk return and <unk> earlier this year the can.

Holiday should about 112 candidates we are in the process of assessing other actions.

In total project Phoenix is expected to result in elimination of approximately 13% of office positions. While this was a very difficult decision and one we as a leadership team did not take lightly we've made every effort to treat our departing colleagues with respect and dignity.

And we're doing all we can to help with their transitions.

The actions we are undertaking are a continuation of the simplification agenda that we've driven over the last four years and in response to the difficult macro environment.

We expect Phoenix to yield annualized pre tax savings in the $222 million to $250 million range.

Fully implemented.

At its core <unk> is not just about restructuring it's about leveraging our scale. It is about significantly evolving our operating model to strengthen the company and prepare for the future.

As macro conditions remain unfavorable to topline growth.

Our prime focus in the near term is cash flow and gross margin improvement.

I know, Chris is working hard to get a nickname back $1 billion a month.

Speaking about the future. This morning, we also shared that I'll be retiring on may 16th.

This is a very bitter sweet moment for me.

While we look forward to pursue new interests and spending more time with my family, including My first Grand Lux was bond just a few weeks ago our 70.

70, Miss everyone at zero brands, it's been a distinct honor and privilege to lead the company over the last several years and I have loved every day at work.

I remain inspired by our talented employees passionate resilient and courageous.

Very proud of our strong World class Executive leadership team, who have made significant progress in strengthening the company by reducing complexity are on the journey to rejuvenate our iconic brands to be more than relevant launching successful innovations that leverage pandemic trends building E Commerce and Omnichannel is the <unk>.

<unk> advantage and transforming our supply chain. The team is working diligently to implement project Phoenix and make our new segment based operating model a major success.

I want to congratulate Chris on his well deserved elevation to the new CEO Neil He has been a true partner to me in the turnaround and I believe he is the right person with the right skill set and permit to take <unk> to the next level.

I know our leadership team respect, Chris and will strongly support him to deliver on our key priorities.

Partnering closely with Chris to ensure a smooth and seamless transition and will focus my efforts on ensuring the successful execution of project Phoenix accelerate momentum on international and rallying the organization to overcome macro challenges with speed.

And extended team.

I'm also pleased to welcome Marc renewals leadership team in his first earnings call with us.

I believe his multiple experiences and CFO will add significant value to euro brands and I'm confident that he and Chris will be a powerful combination to move forward.

Despite the macro headwinds the company faces.

I am optimistic about the future of Aneel.

We have great brands that consumers love, we have belt E com and Omnichannel progress.

Excellent customer relationships and a re igniting the processes and passion to drive meaningful innovation.

We believe we will return.

To driving sustainable profitable growth once the economy turns in our favor.

Days are ahead of us.

<unk> set up and now I turn over to Mark for brief remarks.

Thank you Ravi and good morning, everyone.

Over the last four weeks Ive immersed myself in the business and the organization and during that time in many ways I felt like I was getting reacquainted with an old friend.

I say that because if theyre spending the first 18 years of my career, Procter and Gamble I spent the next 13 years learning the ins and outs of building products transportation luxury goods and health care information technology.

Those unique experiences I believe prepared me well as I know come full circle and returned to my first true business Love, which is consumer products, where deep consumer insights differentiated innovation creative 360 degree marketing operational excellence and the first moment of truth all reigned Supreme.

I undoubtedly still have a great deal more to learn but in my brief time at Newell brands I've already made some high level observations, which I'd like to share with you.

First it is clear to me that over the last couple of years Newell brands under Ravi and Chris's leadership has built a great team with a strong mission driven culture that guidance the behavior of 28000 dedicated professionals, who strive each day to bring value to the business and the organization.

Second dramatic steps have been taken to simplify and streamline the business, which were necessary prerequisite for us to improve our speed agility and financial performance going forward.

Third the bold actions recently announced as part of project Phoenix to reduce overhead costs and create scale across manufacturing distribution and transportation and customer service are all key business and organizational enablers, which I believe will serve us very well in the years ahead.

Finally, and perhaps most importantly, there is broad recognition across the entire company that while these past and current actions are all steps in the right direction, there's much more work that needs to be done.

My interactions have let me just conclusion that the organization is eager and excited about the future because new have a robust portfolio of leading brands with strong market share positions, which when coupled with the right capabilities should allow us to continue on our journey towards becoming a world class innovation led consumer driven company that can consistently.

Gross sales and expand margins year after year and in doing so generate meaningful levels of total shareholder return.

Personally I am excited honored and humbled to be part of that journey and I will now turn the call over to Chris.

Thank you Mark and good morning, everyone.

Like to Echo Robin's sentiment by welcoming mark to the team Mark and I have known each other for a long time, having worked together at P&G.

Although mark has only been here for a short time I can already see what a great fit he has for the organization and look forward to partnering with him and the rest of the leadership team to unlock the full potential of the business I.

I would also like to thank Ravi for his leadership and partnership over the past several years.

<unk> his passion commitment and people first mindset, which are infectious and have reinvigorated the company's culture.

I am honored and excited to become the next CEO of Newell brands.

My new capacity I look forward to working with our leadership team the board and all of <unk> dedicated and talented professionals around the world to drive shareholder value creation through diligent and thoughtful execution of our strategic agenda.

Before jumping into results I'd like to take a few minutes to talk about some of the key business and organizational initiatives. We have recently taken to strengthen the company's operational foundation.

As we've mentioned before a key component of our aspiration to become a <unk> leader in our industry is predicated on creating a scaled world class supply chain that positions <unk> as the retailer partner of choice from a service reliability and capability standpoint, and leaves the breakthrough value creation in terms of margins.

Cash and reduce complexity.

Consistent with that on February one we seamlessly implemented the second go live wave of project ordered across the remaining food categories as well as the writing outdoor and rec and commercial businesses.

Having reached this major milestone in normal supply chain transformation journey. We are now at a point, where we can begin to fully leverage the new go to market model to operationalize distribution and transportation benefits improved customer service better enable omnichannel solutions and drive broad based operational excellence across the organization.

Sure.

Project avid was an integral step in demonstrating the organizations readiness and willingness to undertake a significant change agenda and commit to a wonderful culture. So we are building on this momentum as part of project Phoenix to further optimize the company's operations by centralizing manufacturing into our supply chain center of.

<unk>.

This will for the first time allow us to create and leverage manufacturing scale and turn it into a competitive advantage.

So this will not materialize overnight, we do believe that a unified global supply chain organization will drive significant efficiencies improve our supply chain resiliency further enhanced the company's technical capabilities strengthen our culture of customer connection and collaboration and position us to become a best in class scaled.

General merchandise supplier to our retail partners.

Now, let's move on to fourth quarter results, which were largely consistent with the outlook. We provided in October and our focus on optimizing cash flow yielded strong results.

Net sales for the fourth quarter declined 18, 5% year over year to $2 3 billion due to a nine 4% decrease in core sales.

As well as the impact of the divestiture of the CHS business at the end of Q1 unfavorable foreign exchange and certain categories of retail store exits topline trends remain challenged due to inventory reductions at retail as well as softer consumer demand for general merchandise categories. We expect these dynamics to persist in the near term.

Normalized gross margin contracted 360 basis points versus last year to 26, 6% as the impact of reduced fixed cost absorption unfavorable foreign exchange and inflation more than offset the tailwind from pricing and fuel productivity savings.

Before moving off of gross margin I should mentioned that during the fourth quarter, we elected to change Newell's method of accounting for certain inventory in the U S from LIFO to FIFO to conform the company's entire inventory to a single method and simplify the company's inventory accounting.

Therefore, the financial statements in today's release and the numbers. We are referencing reflects the impact of this accounting change to FIFO. Both in the current and prior year periods, which have been retroactively adjusted for.

For Q4, specifically there was a $4 million increase to cost of goods sold relative to what it would have been under the prior method.

Normalized operating margin declined 510 basis points versus last year to four 9%, reflecting gross margin pressure and the impact of topline deleveraging on SG&A costs.

Net interest expense increased to $64 million from $59 million in the year ago period, the normalized tax benefit was $5 million as compared to a $38 million expense last year with the difference largely driven by an increase in discrete tax benefits for the quarter normalized diluted earnings per share was <unk> 16 compared to <unk> 40.

<unk> last year.

During the fourth quarter Newell's cash flow performance improved considerably.

It began to reflect the actions we took in 2022 to rightsize, our supply and demand plans the business generated operating cash flow of $295 million in Q4 as inventory declined by more than $400 million relative to Q3.

Working capital was a source of cash in Q4, despite a meaningful drag from payables, which had been negatively impacted by the timing of our pullback on the supply plan.

Though the company ended 2022 with an elevated level of working capital and operating cash outflow of $272 million.

Q4 cash result in combination with our proactive pullback on the supply plan give us confidence that operating cash flow will bounce back significantly in 2023.

Despite the strong stack snapback in cash flow. We ended 2022 with a leverage ratio of four five times as we took on short term debt to navigate through this tough environment.

We expect the leverage ratio to be pressured in the near term we remain laser focused on strengthening the company's balance sheet in the years ahead.

Note that effective Q1, we are implementing a new operating model and.

And consolidating our previous five operating segments in the three there.

Therefore in the interest of time Im going to dispense with the usual high level segment sales commentary for two reasons first you can easily find these numbers in the tables attached to our press release and second I'm sure everyone's interested to hear our comments about fiscal 2023.

Taking a step back 2022 was clearly a challenging year for renewal, but we acted quickly and decisively to mitigate the impact of the external headwinds and ensure we are strategically investing in core capabilities that position <unk> for success over the long term.

In 2023, we have identified five major priorities stabilized Newell's financial performance, while driving foundational improvement. So we can return the company to sustainable and profitable growth as macros improve.

First strengthen cash flow and balance sheet by continuing to right size inventories carefully managing the forecasting process and staying close to the evolving consumer and customer trends. So we can remain agile and planning.

Second drive gross margin improvement by accelerating fuel productivity savings further advancing our automation initiatives operational <unk> project off the distribution and transportation benefits pricing internationally for currency and instilling greater financial discipline surrounding.

<unk> new product innovation.

Third drive overhead savings through project, Phoenix, and tight spending controls to offset the impact of incentive compensation reset to normal levels and wage inflation.

Fourth continue SKU count reduction progress and initiate a bottom up white sheet SKU approach to enable the next phase of reduction.

And fifth operationalize, the new company structure to enable faster transformation progress.

Despite taking these proactive and decisive actions to strengthening the company's performance, we expect the external landscape to remain challenging in 2023.

The high level of uncertainty on the macro front has influenced our modeling assumptions are as follows.

We are assuming consumers disposable spending power will be under pressure due to inflation in food housing in energy with consumers in Europe , feeling greater stress than in the U S.

We also expect consumer demand for general merchandise categories to remain soft due both to macroeconomic environment and normalization of home and outdoor categories from peak pandemic demand levels.

Retailers are likely to continue reducing open to buy dollars in general merchandise categories.

Foreign exchange is expected to remain a headwind for the year.

We expect the supply chain pressures to continue to ease and for inflationary pressure to moderate to low single digits of Cogs down from high single digits in 2022, as commodity and transportation prices continue to move off their peak levels.

Since we expect many of the headwinds the company experienced in the second half of 'twenty two to persist in 2023, we are maintaining a prudent bias when setting our demand and supply plans to ensure our heightened focus on cash flow generation working capital improvement and optimization of Newell's cost structure.

Within this context, our 2023 financial outlook contemplates net sales of $8 4 billion to $8 6 billion.

With core sales declining 6% to 8%.

We're assuming nearly a 3% headwind from foreign exchange certain category and Yankee candle store exits and the sale of the <unk> business, which closed at the end of Q1 last year nor.

Normalized operating margin is expected to be flat to down 50 basis points versus last year to nine 6% to 10, 1% as stronger gross margins are offset by overheads, we expect to drive above average productivity savings, which in combination with carryover pricing and new pricing outside the U S.

Should more than offset the impact from inflation.

We're planning to maintain tight spending controls and are assuming the project fenix unlocks about $140 million to $160 million of pre tax savings. This year. However.

However, we expect these benefits to be fully offset in dollar terms by incentive compensation reset wage inflation and select capability investments.

We are forecasting normalized earnings per share of 95 to $1 eight as we expect a significant year over year increase in the interest expense and tax rate. We are assuming a return to a more normalized tax rate in the high teens range as compared to two 5% in 2022 at.

At the midpoint of the range, we are assuming that normalized earnings per share declined low double digits on a constant tax and currency basis.

We expect a significant bounce back on cash flow in 2023 from timing of inventory purchases and payables with free cash flow productivity well ahead of 100% at a bit at the midpoint of our guidance range, we're forecasting operating cash flow and the $700 million to $900 million range, including about 95.

To $120 million in cash expenditures from project Fenix.

Our first quarter outlook assumes the following net sales of $1 79 billion to $1 84 billion, including a core sales decline of 16% to 18% and a 7% headwind from the sale of the CHS business on March 31, 2022, foreign exchange and certain category and Yankee candle store exits.

We are forecasting normalized operating margin of three <unk> to three 5% significantly below 10, 6% last year due to fixed cost deleveraging inflation and foreign exchange pressure.

We expect a normalized loss per share of three to six.

The depressed earnings per share in the company's smallest quarter of the year from a seasonality perspective reflects significant margin pressure a step up in interest expense and a modest tax benefit.

We clearly expect a much tougher first half of the year relative to the back half as the business cycles more challenging topline comparisons with headwinds from currency and inflation carryover over being more front half weighted whereas benefits from project Phoenix are expected to be more back half loaded we're also assuming that retail.

Inventory reductions and constrained spending on discretionary products will persist through the first half of the year.

As such we expect core sales growth to be stronger in the second half of the year versus the first half.

We are taking decisive actions across all areas that are within our control to successfully navigate through this difficult macro backdrop, while building and investing in core capabilities, which we believe will position the company for a return to sustainable and profitable growth.

Operator, let's now open up for Q&A. Thank.

Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.

Press Star one again, please wait for your name to be announced.

Please standby, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Bill Chapell with <unk>. Your line is open.

Thanks, Good morning.

Good morning, Bill borrowings.

And congratulations to everyone.

First I had a question on project Fenix.

Over the years, even before you or 210 years there've been a lot of projects a lot of consolidation.

Of divisions from five to three and three to five and what have you. How is this different I mean, what do you see that.

Cost savings that you haven't already.

Got it.

Prior projects.

Really gets you confident about how this makes a big change.

It's been done it seemed attempted multiple times for the past decade.

So I think let me kick.

Kick that off.

First as is Australia is idea jevan exited.

We were looking at the food business and appliance business.

<unk>.

The customers some of the merchants.

Same.

We were not approaching it on an integrated basis.

Consumers to save because data side in the kitchen.

And this is these type of thinking about it and this whole notion of consumer life moments and occasions.

Really it was driven from a consumer and customer standpoint, saying, a rare disease side and how do you group the businesses.

So as you know <unk> sort of mirror it a bit from centralization or decentralization of our times, but for US we have taken a velocity is a more holistic approach of the businesses for front facing and we have a unifying into back to leverage scale. This is just the next evolution of that.

And so we said hey, it really makes sense ammo side of the home Covid also taught us that home is the hub. So that made sense then to bring those businesses the commercial piece for Australia.

It says that our bank brand.

So we said lets bring that together the key was this.

This has helped us because we had different CFO at HR for each of the businesses. This has helped us reduce it create a bigger jobs for people.

The span of control, etc.

And I think this is very historic about doing international as integrated one New Orleans as a whole because there's been a lot of fragmentation. So this one new market approach go to market approach I think is going to be quite amazing I don't think we've ever unified supply chain globally.

And I think that we.

We just feel that will allow for better decisions on near shoring up pace do you source do you manufacture taking real leverage of our total footprint globally, which we think long term will help gross margins. So when you look at those problems.

And then there is a lot of I think as a company because these are all separate companies in the past one of the key standardizing processes, which we did and Ahmed and we've learned a lot from that and then getting to common measurement systems. So I just think it will create a more efficient company.

And so this was this was not just a hey, let's take cost out for the sake of cost out it was very strategic in how we went about it.

Okay.

I'll follow up on that the second question is just in terms of consumer demand trying to understand.

If there are areas, where youre seeing meaningful.

Back from consumers due to recessionary environment or if you're just expecting.

That to happen as we move through the year end.

The former.

Where are you seeing the biggest pressure point.

I think both two points one I'll just reiterate what we are.

<unk> 2019 from the pandemic levels overall, so that's encouraging the stack growth is 9%, but having said that.

Ken a couple of phenomenon one is due to the stimulus that occurred as well as the pandemic onset businesses and categories have a solid acceleration from a consumer standpoint for instance, appliances is probably the prime candidate then you have the phenomenon of like Casuals.

During <unk>.

Colgate, where people were learning a lot.

<unk> brought in we brought in a lot of low income consumers that now without the stimulus have less default. So you are seeing even before the recession. There are a couple of impacts which are the retailers destocking.

Consumer format acceleration that are kind of in different categories.

I think when you take a look into that.

The things that we are seeing those trends persisting.

In the past.

Great. Thanks, I'll turn it over.

Thank you.

Okay.

One moment for our next question.

Our next question comes from Olivia Tong with Raymond James Your line is now open.

Great. Thank you.

I wanted to talk about your sales expectations and whats embedded in your core revenue outlook for.

This fiscal year, because we assume that Q2 is going to see some more pressure in Q1, and it would imply sort of a low single digit core sales growth in the second half at the midpoint. So so can you provide some color on your views on trends you're going into.

Lack of Destocking in the second half of the year and what your full year outlook.

Reflects in terms of your view on shelf space at retail or losses on what you think the underlying category growth rate as you exit this period of Destocking.

Yeah. Thanks, Olivia I'll take that so I think as I mentioned in the prepared remarks on our revenue outlook, there's really three or four trends that are going on that inform our outlook.

One is normalization of categories from peak COVID-19 levels, and Thats, particularly impacting the home and the outdoor businesses.

We're we're continuing to see sort of a return to pre pandemic category levels second as consumer pressure on discretionary categories.

Inflation in food and housing which is.

Taking a greater share of consumer wallets third as the retailer Destocking impact.

And then finally, we've seen over the last two years, almost 20% input cost inflation and we've largely priced for that as we've talked but that also is putting pressure on categories from a volume standpoint, if you look at the trend during the year.

Sure.

Guiding for core sales growth of minus 16% to 18% in Q1, we.

We're not going to give quarterly guidance, but I don't think it's a fair assumption to say that we expect that to continue in Q2.

I do think that that Q1 is uniquely.

Negative because of the comparison, if you look at the two year stacked on Q1, it's almost 27 or 28% that we're comping. So it is the toughest comp as.

As we mentioned in the remarks, we do expect the back half to be better than the front half, but I don't think it's the right assumption to think that Q2 is <unk>.

Going to be down as much as Q1.

Got it and then Chris.

Congrats first.

I wanted to get your view in terms of.

Potential for a strategic review.

As you move into the CEO position, whether you think there's another look at the categories and brands you have how you think about that.

For the longer term.

Sure.

I think the way I'm thinking about that is I think that.

We put the turnaround place.

Turnaround plan in place about three or four years ago, and I think as we've talked we've made significant progress on that but the macro environment is different today than it was then and because of the progress that we've made.

I think that now is an opportune time to re look at the company's strategy going forward.

So I intend to do that with the leadership team.

I don't expect that were going to have a revolution in the strategy, but I think it's likely that we will evolve the strategy.

But I want to take the time to.

Confer with the leadership team and also.

Understand sort of the current environment.

I expect that it will take us.

Several months to get through.

And we'll be ready to share something as soon as we get through that process.

Understood. Thank you.

Okay.

Thank you.

One moment for our next question.

Our next question comes from Peter Grom.

With UBS your line is open.

Hey, good morning, everyone.

And Ravi Chris Mark Congrats to you all maybe just one quick housekeeping item.

The topline impact embed any.

Yes.

This is the top line outlook and then any potential impact from what's going on at one of your.

Largest retail partners.

<unk> been in the news quite a bit recently and then I guess just.

Maybe bigger picture, taking you spent back the business has changed a bit.

Over the past few years, but kind of taking the guidance into consideration sales are really retrenching here.

And Chris you mentioned normalization and kind of consumer pressures, but just kind of bringing it back to the long term core sales target of low single digits. I mean is there something you've learned over the past year or 18 months or so and that kind of changes your confidence and your ability to deliver on that target kind of longer term as we kind of get.

Through this period of disruption.

I'll just first talk very quickly the answer is no.

In terms of any particular.

Retailers issues affecting us Chris.

Maybe just to build on the obvious answer on the first one I think I think the retailer you are talking about is.

Likely bed Bath and beyond.

They represent less than 2% of the company's revenue.

And we're working very collaboratively with them in terms of kind of a win win go forward partnership I'll leave it at there, but it is not a significant part of the company's business.

On the long term algorithm.

I don't think theres anything that causes us to change the <unk>.

Goal in the evergreen model of getting to long getting to low single digit consistent sustainable core sales growth.

And so we are still committed to that.

As our evergreen top line target.

<unk>.

Obviously, we've been impacted by a lot of the trends that we've talked about which has us off of that.

This year.

But we very much are working hard to get back there as quickly as we possibly can.

I think the one thing I'd add just sort of when you look back look these last three and a half years they've had so many things right.

Had the pandemic than supply constrains inflation foreign exchange <unk> et cetera.

So to me.

The Holy Grail is 2019 as the base here and the fact that in 2022, where we're still.

<unk> versus <unk> 19 in the stack growth was 9% should really our brands remain strong I know, Chris and the team are really going to take it to the next level. So I think once the economy turns I do feel that the evergreen model that Chris <unk> is still intact.

Sure.

Great. Thank you so much and then just this might be a hard question to answer just given the uncertainty on the <unk>.

Current environment, but.

Chris we've kind of seen when new Ceos come in initial outlook tends to be.

Somewhat conservative.

The team up for success and so I guess, how would you characterize your confidence in this guidance today.

Do you feel like you've embedded enough flex should things deteriorate further from here either from a consumer demand perspective or inflation or is that just kind of the.

<unk>.

Kind of.

First it can kind of get and things could get better there can be upside to the earnings as we move through the balance of the year.

Yes, I think.

Just give you sort of a high level.

Conceptual answer to that which is we've tried to reflect in the guidance everything we knew about the current environment, we tried to be realistic in.

What we know based on the go forward.

<unk> and headwinds for the business this year and we did want to take a prudent bias.

On the core sales because our focus this year is to get cash flow back.

<unk>.

And the best way to get cash flow back is not to overbuild inventory and we wanted to manage our supply and demand plan in a way that ensured that we had an above average cash flow year.

As we mentioned in the prepared remarks.

Seeing significant headwinds in terms of the tax rate, which is going from two 5% to <unk>.

High teens rate, which is our kind of long term normalized operating rate.

We are seeing interest expense.

He is going to be up about $45 million this year versus last year.

And we've got the headwinds as we mentioned of incentive comp reset and foreign exchange. In addition to the the core sales deleveraging on the flip side we.

We feel very good about Ahmed.

And the benefits that all of it is going to generate we built.

Our productivity our gross productivity assumptions are.

Well above 4% of cost for the cost of goods sold for this year. So it's a step up in gross productivity that's embedded in our guidance because of all of it because of the fuel productivity program and automation.

And we've embedded in as we've talked the Phoenix overhead savings and.

International pricing, along with carryover pricing and so.

I feel good about.

Sort of where we are based on what we know today.

Great. Thanks, so much and congrats to all again.

Thank you.

Our next question comes from Kevin Grundy with Jefferies. Your line is now open.

Great.

Hey, good morning, everyone just to Echo my congratulations as well.

And it's a difficult environment like this it may not seem that way, but I think a lot of folks on this call that have followed the company for a while it's certainly in a better place than it's been it was posted yard merger. So congrats on that.

Question on project Fenix.

To start if we could.

It seems like another step along with all of us to drive efficiencies and reduce complexities in the organization, which was inherently more complex in many cases, perhaps too decentralized coming out of that yard merger, but at the same time, it's a lot of change in what's a very dynamic and challenging environment can you just comment on how the organization is handling all this change and why.

We should not be worried about potential risk due to the result at least in the near term and then I have a follow up thanks.

Okay. Thank you so much look that's a great question.

I would say, we absolutely could not have done this three years ago.

And.

You may recall.

Chris and I started our engagement scores for about 37% to 45.

We went up to 75, while classrooms.

Much consultants told us that take US Dan is we got there in two years and we've maintained that last year than we did in November so the organization's culture.

Is a competitive advantage and very strong, but they could absorb it and this whole idea of what Neil is imbued.

And the employees and the way we handle that was meticulous planning we started that Phoenix idea process should we started working on it through July and brought in a later so people systematically over time to give them ownership. Our communication has truly been outstanding for make sure.

People understood why we were doing it and finally the people that we had to exit we treated them with enormous dignity and respect and so much. So if you go back to Linkedin and take a loss, even those who exited a cheering for newell and won't be able to succeed so I think that culture.

And it's been very strong people understand why we need to do this and I think it's a journey.

And with the great test to see whether we could centralized distribution and that was very successful.

<unk> the courage to centralized manufacturing throughput sales all under our chief customer officer. So I think so far the reaction of the organization has been actually very positive movement as concerned about the people FBR to make sure there <unk>.

<unk> the other part of that has been because of our previous.

History. We've also made sure that his role clarity reduce duplication. So I think people are feeling even more empower so I'd say the chances of succeeding are very high.

Excellent. Thank you for that Ravi.

Chris probably for you just on margins just to kind of step back and make sure that.

We're not missing the forest for the trees here.

Sure.

Dealing with a lot in terms of volume deleverage FX cost et cetera, but longer term sort of thinking at Martin with margins versus your original benchmarks, but since then we will review it project fuel we have Amit you have project Phoenix I think the commentary has been that there's no reason this cannot be a 17% to 18% EBITDA margin business longer.

Terms, you sort of look past this volume deleverage and so forth as we come out of the cycle is that still the view is that where investors should sort of.

Sort of anchor longer term expectations or is it potentially even superior to that now just given some of the programs that <unk> been up and then I'll pass it on thank you.

Yes, I think I think that.

There's no question that.

That we are shooting for a much higher margin profile in this business and I think we have the opportunity to drive that over time.

Versus where we are today so.

I think that sort of a.

Our mid to high teens, EBITDA or EBIT margin is.

It is very much in our in our long term sights as we've talked.

When we did the original benchmarking, we thought that gross margin, we ought to be targeting to get the companys gross margin up to 37% to 38% we've taken a.

A series of backward steps for a variety of reasons associated with fixed cost deleveraging inflation et cetera.

But I think.

Our guidance. This year is for gross margin to turn and start to move positive.

And.

And I think that trend we are very focused on driving that and then we continue to believe that.

Although we may have some deleveraging effect this year, we believe that.

Getting our overhead down towards that 16%, 15%, 16% level.

Is the right thing as well so.

Think that that can yield.

Margins that are that are much stronger than where we are today and I think a lot of that continues to be in our control.

Although we are subject as we've seen in the short term to the macro trends, which means it's not going to be a straight line as I've said many times before.

Thank you.

And our next question comes from Andrew <unk> with Jpmorgan. Your line is now open.

Thank you operator, good morning, everyone and congrats to all.

I think I can speak to most of those.

One is on this call.

I think you saw that you did not negative about the peso had when you announced the two key learnings and later with project Phoenix can.

Can you help us bridge, a little bit of what's gone worse.

Brian December perhaps the consumer or the retailers.

That too.

Conservative stance on.

He was on the inventory levels.

And also on a clarification on the commentary about the higher management compensation in 2023.

I guess, we've results materially lower.

How can compensation normalized this year I think you were adjusting.

Adjusting out some of the external factors within the compensation metrics I just want to see if we can bridge that to the commentary that you gave.

Despite those savings in the project Fenix, you pretty much will offset everything with enable inflation management companies you can bridge those those components that would be super helpful. Thank you.

I mean, I'd see us final.

Last question first very quickly.

Essentially.

This year.

Our compensation is performance driven variable.

So the great part and as an LTI component as well so we really because we didn't make our numbers, obviously that STI components are very low.

For 2022, and it also affected our LTI. So when we look at trade and trade, we stopped with the assumption that it will be normalized.

<unk> assumed that target numbers, so that is a big big jump plus.

Plus the wage inflation.

That is why we said the Phoenix was offsetting that.

Okay relative to the change.

Perhaps and what we're seeing from November I don't think we I think this is the first time, we're giving guidance for this year.

And.

The reason why we give guidance for the first time on this call is because we want to give guidance when we have clearer visibility on the macros and there are it is a difficult macro environment from a forecasting standpoint, because there's a lot of uncertainty and a lot of variability in the range I think.

As we've seen the macro trends.

Continuing over the last few months as we saw where Q4 came in as we saw.

When we started off in January .

And as we got more visibility to the forecasting.

We felt like that helped inform our topline guidance on core sales growth for this year.

I think many of the comments that we made are still applicable we do expect this year to be a significantly above average gross productivity year as a result of benefits from the army program fuel productivity automation.

And as a result, we're expecting gross margin to be up this year I think the piece that.

<unk>.

Thats offsetting that from a margin rate standpoint is really the overhead rate and thats really because of the.

The top line deleverage more than anything else.

Our overhead costs in total are relatively flat in dollar terms.

As we mentioned because of the wage inflation incentive comp and select capability investments that we're making which are offsetting the phoenix savings. So.

And then obviously the interest expenses moved with.

As the fed has raised rates and rates on short term borrowing has gone up.

And from a tax rate standpoint, we're planning for.

Sort of a full operational tax rate as I mentioned before okay can I just add something.

We've had a full year of training tool to look at what happened.

And really there.

Being a bit repetitive, but the forces of both retailer.

Destocking consumer call. It acceleration all of that and then an impending or imminent recession. When you look at all of that I think it's really a consumer environment, which has softened. So I think we're just being prudent about that our brands inherently are.

We're continuing to strengthen our brands. So I would just look at that on the very important Chris has really been very clear that.

The major focus of training training III is to get that cash flow back.

Thank you.

And then last question will come from the line of Lauren Lieberman with Barclays. Your line is now open.

Great. Thanks, Good morning, everyone and Marc Hi, again.

Yes.

Just wanted to ask one quick question.

We're just looking at the outlook for this year.

And how youre thinking about it.

Still lingering destocking activity versus consumption.

Thank you.

Alright.

I apologize I missed it but clarity on that would be great.

All of them.

Yes, it's a good question Lauren.

And I would say that we do expect some lingering retailer destocking largely we expect that to be complete in the first half of the year.

And so clearly if you look at the.

The Q1 guidance, where we're guiding core sales down 16% to 18, we are not seeing our underlying Pos trends down that much and part of the part of the difference there is retailer Destocking I would say that the retailers made significant progress on destocking from our view.

And what we're hearing in the back half of last year, but we don't believe that it's that it's fully over yet we do expect.

From what we're hearing that the.

The retailer Destocking will largely be complete by the first half of the year.

Although.

Hard to predict entirely but thats what were.

That's what we're planning for and that's what we're hearing from the major retailers that we interact with today, which is why we think second half would be slightly better than the first half.

Okay, great. Thanks, so much.

Thank you alright.

This concludes today's conference call. Thank you for your participation.

Today's call will be available later today on the company's website at IR Dot Newell Brands' Dot Com you may now disconnect have a great day.

The conference will begin shortly two ways and lower Johan during Q&A, you can dial one one.

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Good morning, and welcome to the Newell Brands' fourth quarter and full year 2022 earnings conference call.

At this time all participants are in a listen only mode. After a brief discussion by management, we will open up the call for questions in order to stay within the time scheduled for the call. Please limit yourself to one question during the Q&A session. As a reminder, today's conference is being recorded.

Cash flow for this call is available at IR Dot Newell brands' Dot Com I will now turn the call over to Cepheid.

Vice President of Investor Relations Ms. Chen you may begin.

Thank you good morning, everyone welcome to <unk> brands fourth quarter and full year earnings call on the call with me today are Ravi <unk>, our CEO , Chris Peterson, our president and the newest member of the executive team Marc <unk>, our CFO before we begin I would like to inform you that during the course of today's call, we will be making forward looking statements.

Risks and uncertainties actual results and outcomes may differ materially and we undertake no obligation to update forward looking statements I refer you to the cautionary language and risk factors is available in our earnings release, our Form 10-K, cornerstone Q and other SEC filings available on our Investor Relations website.

A discussion of the factors affecting forward looking statements. Please also recognize that today's remarks will refer to certain non-GAAP financial measures, including those we refer to as normalized measures. We believe these non-GAAP measures are useful to investors, although they should not be considered superior to the measures presented in accordance with GAAP explanations of these.

non-GAAP measures are available and available and conciliation between GAAP and non-GAAP measures can be found in today's earnings release and tables as well as other materials.

Dr Relations website, thank you and now I'll turn the call over to Robyn. Thank you Sofia.

Good morning, everyone and thank you for joining us on our year end call.

Fourth quarter results were in line with our expectations and brought to a close a difficult second half.

<unk> continued to be impacted by a top operating environment, including slowing consumer demand for general merchandise categories as well as inventory reductions at retail.

Our team remains focused on executing our strategic priorities with excellence, while navigating these challenges.

He did a great job in reducing inventories in the fourth quarter and drove sequentially stronger cash flow performance.

For the.

Core sales declined three 4% against a very demanding year ago comparator.

<unk>, 5% growth.

Volumes more than offset favorable pricing.

Stacked growth exceeded 90%.

I think in commercial businesses delivered cost Saturn and 2022, while cost of sales for the other businesses declined.

The company's courthouse and domestic consumption exceeded 2019 levels.

As home and outdoor categories, continuing to normalize from peak pandemic levels. Many of our major brands such as Rubbermaid Sharpie paper mate Rubbermaid commercial products ball Expo <unk> gas showed showed strength.

Despite a much tougher than anticipated operating in macro environment in 2022, which weighed heavily on the company's results.

We made tangible progress across a number of focus areas.

Many of our iconic brands were recognized for their innovations for example, all stack installer innovation, good housekeeping screening and organization of all Greg on the <unk> Innovation Award for childhood <unk> systems with the Branco tend to Green Coffee Coleman Route 285 standard approach.

<unk>.

<unk> was recently ranked by outdoor lab is the best part about growth in 2022 in the U S. New innovation on to Mr. Coffee.

<unk> reported one received the good housekeeping Beth again Best Coffee Award.

Our latest innovation in writing element Squishies launched exclusively in Q4 at a major retailer.

<unk> strong results in three months, it became new ones pop activity item outpacing slides sales over three to one national launch of squishy across U S. Retail will begin in late March 2020 trade.

In April 22, we launched new creative kitchen by unique efficient social media vehicle that allows us to take a panel approach to connect our brands across consumer life moments and occasions, and bring curated content to target consumers, allowing them to repost.

So Darren followed us.

<unk> seen a fourfold increase in engagement through our live presentations at a 90% higher click through rate to our branded website since trading yohe a kitchen.

Second we continued about operational excellence across the organization by transforming our supply chain from project Almond and automation and not only is the CFPB announced the next major step in this journey as we are unifying our global supply chain and centralizing manufacturing, which we expect to drive meaningful Mark.

The improvement in the long term.

Third we made significant progress on complexity reduction ending 2022 with about 28000, skus as compared to approximately 36000 in 2021 and over 100000 in 2018.

Revenue per SKU has more than tripled versus 2019.

We'll continue reducing skus.

And accelerate SKU productivity.

Fourth we drove another year of strong productivity savings at around 3%, our Cogs, which in combination with pricing actions helped to mitigate the highest single digit headwind from inflation. We've been further accelerated our productivity efforts in 2023.

And last but certainly not least we advanced our corporate citizenship agenda as we continue to galvanize our employees to be a force for good.

We strengthened Opdivo first one newer culture maintained strong employee engagement, our growth platforms and commitment to carbon neutrality by 2044, all scope, one and two emissions across our global portfolio.

Also pleased to share that for the second consecutive year newer brands has been named Fortune's 2023 world's most admired companies.

While we are proud of the operational achievements and believe we are a much more agile company. Today. We also recognize that the macros have put considerable pressure on our business, we have been taking proactive and decisive actions to effectively navigate the current environment, while positioning the organization for long term success in la.

January we announced project Phoenix, a major evolution in our operating model and a restructuring program that is expected to drive significant savings.

It's been further simplify and strengthen our company by leveraging the scale and power of <unk> to optimize our cost structure and operate more efficiently.

Let me shed more light on our project Phoenix There are five key tenets first we will combine business units into three operating segments based on consumer dynamics and customer commonalities.

We will centralize our sales efforts for our top four customers.

Ed will go to a one new go to market approach in key international geographies.

Fourth we will centralize and unified manufacturing globally and.

Fifth we have strengthened key capabilities.

Reduce duplication and enhanced role clarity and drive standardization of processes tools and measurements.

We are bringing the food home fragrance home appliances, and commercial businesses under one umbrella and commercial solutions led by Mike Mcdevitt segment CEO , Lisa Mccarthy has assumed a new role of Chief operating officer of the home business reporting to Mike <unk>.

<unk> in development, which includes writing and baby is led by Chris <unk>.

<unk> will continue to lead our outdoor recreation business.

Through this evolution, we will honor the differences and nuances among businesses and unified our commonalities relate it to the consumer and customer, while leveraging our scale and enabling better opportunities for internal mobility.

Our iconic brands play a key role in the lives of nearly every U S household we expect the new operating model to unlock additional growth opportunities for the business over time.

We will leverage the power of our brands to meet consumer daily needs in and out of their homes through that made.

This moment medications.

Our international business remains an important priority for Newell in 2023 cost satisfy international increased five 4% significantly outpacing North America, despite the macro and geopolitical pressures as part of project Phoenix, we are continuing to reduce international fragmentation.

By moving to a one go to market approach in key geographies, such as Australia, and New Zealand, Latam, Japan, and as announced last fall, Canada. We're also evaluating the structure in consultation with the employee works councils in Europe .

<unk> reduce fragmentation accelerate growth and profit trajectory by international businesses over time and increased depth and breadth of franchise outside the U S.

As part of project Phoenix in the U S. We're also moving to a one year old SaaS model for several of our top customers centralizing. These teams for the simplify our customer interaction significantly improve the customer experience and strengthen our position as a best in class partner.

Proud that both high wide deep and enduring relationships with key customers and are increasingly perceived as a valuable strategic partner.

Based on the success of project Ahmed at and its been at a one Neil we are moving to a unified global supply chain organization, which Chris will elaborate on later.

Okay.

As we focus on optimizing our cost structure, we are taking decisive action on our real estate and <unk>.

A hybrid <unk> environment, we had the opportunity to close or consolidate offices and adopt new ways of working we just announced closure of our corporate offices in Boca Raton, and <unk> that is as yet the consolidation of <unk> cabinets.

In the process of assessing other actions.

In total project Phoenix is expected to result in the elimination of approximately 13% of office positions. While this was a very difficult decision and one we as a leadership team did not take lightly we made every effort to treat our departing colleagues with respect and dignity.

And we're doing all we can to help with their conversations.

The actions we are undertaking are a continuation of the simplification agenda that we've driven over the last four years and in response to the difficult macro environment.

We expect Phoenix to yield annualized pre tax savings in the $220 million to $250 million range when fully implemented.

At its core <unk> is not just about restructuring it's about leveraging our scale. It is about significantly evolving our operating model to strengthen the company and prepare for the future.

As macro conditions remain unfavorable to our topline growth.

Our prime focus in the near term is cash flow and gross margin improvement.

I know, Chris is working hard to get a nickname back at the $1 billion on that.

Speaking about the future. This morning, we also chat, but I'll be retiring on may 16th.

This is a very bitter sweet moment for a.

While we look forward to pursue new interests and spending more time with my family, including <unk> <unk> Lux was bond just a few weeks ago 70, Miss everyone aircrafts.

It's been a distinct honor and privilege to lead the company over the last several years and I have loved every day at work.

I remain inspired by our talented employees are passionate resilient and courageous.

Im very proud of our strong World class Executive leadership team, who have made significant progress in strengthening the company by reducing complexity are on the journey to rejuvenate our iconic brands to be more modern and relevant launching successfully innovations that leverage pandemic trends building E Commerce and Omnichannel.

Our competitive advantage and transforming our supply chain. The team is working diligently to implement project Phoenix and make a new segment based operating model a major success.

I want to congratulate Chris on his well deserved elevation to the new CEO Neil He has been a true partner to me in the turnaround and I believe he is the right person.

With the right skill set and drive <unk> permit.

Take <unk> to the next level.

Our leadership team respect, Chris and will strongly support him to deliver our key priorities I'll be monitoring closely that Chris to ensure a smooth and seamless transition and will focus my efforts on ensuring the successful execution of project Phoenix accelerate.

Momentum on international and rallying the organization to overcome macro challenges with speed and extended team.

I'm also pleased to welcome Mark <unk> leadership team.

First earnings call with us.

<unk> has multiple experiences as CFO will add significant value to eurobonds and I'm confident that he and Chris will be a powerful combination to move forward.

Despite the macro headwinds the company faces.

I am optimistic about the future of Aneel.

We have great brands that consumers love.

<unk> E com and Omnichannel Probus.

Excellent customer relationships and are really.

19, the processes and passion to drive meaningful innovation.

We believe we will return.

To driving sustainable profitable growth once the economy turns in our favor.

Days are ahead of us.

<unk> set up and now I turn over to Mark probably for months.

Thank you Ravi and good morning, everyone.

Over the last four weeks Ive immersed myself in the business and the organization and during that time in many ways I felt like I was getting reacquainted with an old friend.

I say that because if they are spending the first 18 years of my career, Procter and Gamble I spent the next 13 years learning the ins and outs of building products transportation luxury goods and health care information technology.

Those unique experiences I believe prepared me well as I know come full circle and returned to my first true business Love, which is consumer products, where deep consumer insights differentiated innovation create a 360 degree marketing operational excellence and the first moment of truth all range of training.

I undoubtedly still have a great deal more to learn but in my brief time at Newell brands I've already made some high level observations, which I'd like to share with you.

First it is clear to me that over the last couple of years newer brands under Ravi and Chris's leadership has built a great team with a strong mission driven culture that guides the behavior at 28000 dedicated professionals, who strive each day to bring value to the business and the organization.

Second dramatic steps have been taken to simplify and streamline the business, which were necessary prerequisite for us to improve our speed agility and financial performance going forward.

My interactions have led me to the conclusion that the organization is eager and excited about the future because new have a robust portfolio of leading brands with strong market share positions, which when coupled with the right capabilities should allow us to continue on our journey towards becoming a world class innovation led consumer driven company that can consistent.

Gross sales and expand margins year after year and in doing so generate meaningful levels of total shareholder return.

Personally im excited honored and humbled to be part of that journey and I will now turn the call over to Chris.

Thank you Mark and good morning, everyone.

Like to Echo Robin's sentiment by welcoming mark to the team Mark and I have known each other for a long time, having worked together at P&G.

I would also like to thank Ravi for his leadership and partnership over the past several years I've admired his passion commitment and people first mindset, which are infectious and have reinvigorated the company's culture.

I am honored and excited to become the next CEO of Newell brands.

Cash and reduce complexity.

Consistent with that on February one we seamlessly implemented the second go live wave of project Ahmed across the remaining food categories as well as the writing outdoor and rec and commercial businesses.

Having reached this major milestone of Newell supply chain transformation journey. We are now at a point, where we can begin to fully leverage the new go to market model to operationalize distribution and transportation benefits improved customer service better enable omnichannel solutions and drive broad based operational excellence across the organization.

<unk>.

This fall for the first time allow us to create and leverage manufacturing scale and turn it into a competitive advantage.

This will not materialize overnight, we do believe that a unified global supply chain organization will drive significant efficiencies improve our supply chain resiliency further enhance the company's technical capabilities strengthen our culture of customer connection and collaboration and position us to become a best in class scaled.

General merchandise supplier to our retail partners.

Now, let's move on to fourth quarter results, which were largely consistent with the outlook. We provided in October and our focus on optimizing cash flow yielded strong results.

Net sales for the fourth quarter declined 18, 5% year over year to $2 3 billion due to a nine 4% decrease in core sales.

As well as the impact of the divestiture of the CHS business at the end of Q1 unfavorable foreign exchange and certain category and retail store exits topline trends remain challenged due to inventory reductions at retail as well as softer consumer demand for general merchandise categories. We expect these dynamics to persist in the near term.

For Q4, specifically there was a $4 million increase to cost of goods sold relative to what it would have been under the prior method.

Normalized operating margin declined 510 basis points versus last year to four 9%, reflecting gross margin pressure and the impact of topline deleveraging on SG&A costs.

<unk> last year.

During the fourth quarter Newell's cash flow performance improved considerably and it began to reflect the actions. We took in 2022 to rightsize, our supply and demand plans the business generated operating cash flow of $295 million in Q4 as inventory declined by more than $400 million relative to Q3.

<unk>.

Working capital was a source of cash in Q4, despite a meaningful drag from payables, which had been negatively impacted by the timing of our pullback on the supply plan.

Although the company ended 2022 with an elevated level of working capital and operating cash outflow of $272 million.

Q4 cash result in combination with our proactive pull back in the supply plan give us confidence that operating cash flow will bounce back significantly in 2023.

Despite the strong stack snapback in cash flow. We ended 2022 with a leverage ratio of four five times as we took on short term debt to navigate through this tough environment, while we expect the leverage ratio to be pressured in the near term we remain laser focused on strengthening the company's balance sheet in the years ahead.

Note that effective Q1, we are implementing a new operating model.

And consolidating our previous five operating segments in the three.

Taking a step back 2022 was clearly a challenging year for Newell, but we acted quickly and decisively to mitigate the impact of the external headwinds and ensure we are strategically investing in core capabilities that position <unk> for success over the long term.

In 2023, we have identified five major priorities to stabilized Newell's financial performance, while driving foundational improvement. So we can return the company to sustainable and profitable growth as macros improve.

Second drive gross margin improvement by accelerating fuel productivity savings further advancing our automation initiatives operational <unk> project, Amit distribution and transportation benefits pricing internationally for currency and instilling greater financial discipline surrounding.

<unk> new product innovation.

Third drive overhead savings through project, Phoenix, and tight spending controls to offset the impact of incentive compensation reset to normal levels and wage inflation.

Fourth continue SKU count reduction progress and initiate a bottom up white sheet SKU approach to enable the next phase of reduction.

And fifth operationalize, the new company's structure to enable faster transformation progress.

Despite taking these proactive and decisive actions to strengthening the company's performance, we expect the external landscape to remain challenging in 2023.

High level of uncertainty on the macro front has influenced our modeling assumptions are as follows.

We are assuming consumers disposable spending power.

Under pressure due to inflation in food housing in energy with consumers in Europe , feeling greater stress than in the U S.

Retailers are likely to continue reducing open to buy dollars in general merchandise categories. Foreign exchange is expected to remain a headwind for the year.

Since we expect many of the headwinds the company experienced in the second half of 'twenty two to persist in 2023, we're maintaining a prudent bias when setting our demand and supply plans to ensure our heightened focus on cash flow generation working capital improvement and optimization of Newell's cost structure.

Within this context, our 2023 financial outlook contemplates net sales of $8 4 billion to $8 6 billion with core sales declining 6% to 8%.

We're assuming nearly a 3% headwind from foreign exchange certain category and Yankee candle store exits and the sale of the <unk> business, which closed at the end of Q1 last year.

Should more than offset the impact from inflation.

We're planning to maintain tight spending controls and are assuming the project Phoenix unlocks about $140 million to $160 million of pre tax savings this year.

However, we expect these benefits to be fully offset in dollar terms by incentive compensation reset wage inflation and select capability investments.

We are forecasting normalized earnings per share of <unk> 95 to $1 eight as we expect a significant year over year increase in the interest expense and tax rate. We are assuming a return to a more normalized tax rate in the high teens range as compared to two 5% in 2022 at.

At the midpoint of the range, we are assuming that normalized earnings per share declined low double digits on a constant tax and currency basis.

To $128 million in cash expenditures from project Fenix.

Our first quarter outlook assumes the following net sales of $1 79 billion to $1 $84 billion, including a core sales decline of 16% to 18% and a 7% headwind from the sale of the <unk> business on March 31, 2022, foreign exchange and certain category and Yankee candle store exits.

We are forecasting normalized operating margin of three <unk> to three 5% significantly below 10, 6% last year due to fixed cost deleveraging inflation and foreign exchange pressure.

We expect a normalized loss per share of 3% to six.

The depressed earnings per share in the company's smallest quarter of the year from a seasonality perspective reflect significant margin pressure a step up in interest expense and a modest tax benefit.

We clearly expect a much tougher first half of the year relative to the back half as the business cycles more challenging top line comparisons with headwinds from currency and inflation carryover over being more front half weighted whereas benefits from project Phoenix are expected to be more back half loaded we're also assuming that retailer.

Inventory reductions and constrained spending on discretionary products will persist through the first half of the year.

As such we expect core sales growth to be stronger in the second half of the year versus the first half.

As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound.

Press Star one again, please wait for your name to be announced.

Please standby, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Bill Chapell with choose your line is open.

Thanks, Good morning.

Good morning Bill.

And congratulations to everyone.

First kind of question on project Phoenix.

Over the years, even before you or 210 years there've been a lot of projects a lot of consolidation.

All of divisions from five to three and three to five and what have you. How is this different I mean, what do you see that the cost savings that you haven't already.

Got it.

Projects that really gets you confident about how this makes a big change like I said, it's been done it seems attempted multiple times for the past decade.

So bill I think let me kick that off.

First is in Australia is the idea of German exited.

When we were looking at the food business and appliance business.

And.

The customers and our merchants are the same.

Same.

We were not approaching it on a integrated basis the consumers the same make us data side in the kitchen.

This is the start of thinking about it and this whole notion of consumer life moments and occasions.

And really it was driven from a consumer and customer standpoint, saying, a rare disease side and how do you group the businesses.

So as you know sort of a weird a bit from centralization or decentralization of our times, but for US we have taken in the last three is a more holistic approach of <unk> the businesses for front facing and we have a unifying into back to leverage scale. This is just the next evolution of that.

And so we said hey, it really makes sense candle side of the home Covid also taught us that home is the hub. So that made sense then to bring those businesses. The commercial piece was greatly.

First that our bank brand.

So we said lets bring that together the key was this.

This has helped us because we had different CFO at HR for each of the businesses. This has helped us reduce it create a bigger jobs for people.

Improve the span of control etc.

I think this is very historic about doing international as integrated one New Orleans as a whole because there's a lot of fragmentation. So this one new market approach go to market approach I think is going to be quite amazing.

Don't think we've ever unified supply chain globally.

I think that.

And then there is a lot of I think as a company because these are all separate companies in the past one of the key standardizing processes, which we did in <unk> and we have led to a lot from that and then getting to common measurement systems. So I just think it will create a more efficient company.

And so this was this was not just a hey, let's take cost out for the sake of cost out it was very strategic in how we went about it.

Okay.

I'll follow up on that the second question is just in terms of consumer demand trying to understand.

If there are areas, where youre seeing meaningful pullback from consumers due to recessionary environment, where if you're just expecting.

That to happen as we move through the year end.

The former.

Are you seeing the biggest pressure point.

I think two points one I'll just reiterate bottom there.

2019 from the pandemic levels overall, so that's encouraging the stack growth is 9%, but having said that.

Ken a couple of phenomenon one is due to the stimulus that occurred as well as the pandemic.

SaaS businesses and categories of a fallout acceleration from a consumer standpoint for instance, appliances is probably the Prime candidate then you had the phenomenon of like Casuals.

During the call.

Colgate, where people were learning a lot.

<unk> brought in are we brought on a lot of low income consumers that now without the stimulus have left default. So you are seeing even before the recession. There couple of impacts which are the <unk> destocking.

Consumer format acceleration that are kind of in different categories.

I think when you take a look into that.

The things that we're seeing those trends persisting.

In the first half.

Great. Thanks, I'll turn it over.

Thank you.

Okay.

One moment for our next question.

Our next question comes from Olivia Tong with Raymond James Your line is now open.

Great. Thank you.

I wanted to talk about your sales expectations and whats embedded in your core revenue outlook for this.

This fiscal year, because we assume that Q2 clients with similar pressure in Q1, and it would imply sort of a low single digit core sales growth in the second half at the midpoint. So.

So can you provide some color on your views on trends you begin to lap a destocking in the second half of the year and what your full year outlook.

Flex in terms of your view on shelf space at retail or losses, how much you think the underlying category growth rate as you exit this period of Destocking.

Yeah. Thanks, Olivia I'll take that so I think as I mentioned in the prepared remarks on our revenue outlook, there's really three or four trends that are going on that inform our outlook.

One is normalization of categories from peak COVID-19 levels, and Thats, particularly impacting the home in the outdoor businesses.

We're we're continuing to see sort of a return to pre pandemic category levels second as consumer pressure on discretionary categories.

Inflation in food and housing which is.

Taking a greater share of consumer wallets third as the retailer Destocking impact.

Sure.

Guidance for core sales growth of minus 16% to 18% in Q1, we were.

We're not going to give quarterly guidance, but I don't think it's a fair assumption to say that we expect that to continue in Q2.

I do think that that Q1 is uniquely.

Negative because of the comparison, if you look at the two year stacked on Q1, it's almost 27 or 28% that we're comping. So it is the toughest comp as.

As we mentioned in the remarks, we do expect the back half to be better than the front half, but I don't think it's the right assumption to think that Q2 would it.

Going to be down as much as Q1.

Got it and then Chris.

That's first.

I wanted to get your view in terms of.

Potential for a strategic review.

As you move into the CEO position, whether you think there is a number look at the categories and brands you have or how you think about that.

For the longer term.

Sure.

Yes, I think the way I'm thinking about that is I think that.

We put the turnaround place some turnaround plan in place about three or four years ago, and I think as we've talked we've made significant progress on that but the macro environment is different today than it was then and because of the progress that we've made.

I think that now is an opportune time to re look at the company's strategy going forward and so I intend to do that with the leadership team.

Don't expect that we're going to have a a revolution in the strategy, but I think it's likely that we will evolve the strategy.

But I want to take the time to.

Confer with the leadership team and also.

Understand sort of the current environment.

I expect that will take us.

Several months to get through.

And we'll be ready to share something as soon as we get through that process.

Understood. Thank you.

Okay.

Thank you.

One moment for our next question.

Our next question comes from Peter Grom.

With UBS your line is open.

Hey, good morning, everyone.

And Ravi Chris Mark Congrats to you all maybe just one quick housekeeping item.

The top line impact embed any.

Yes.

This is the top line outlook and then any potential impact from what's going on at <unk>.

Largest retail partners have been in the news quite a bit recently and then I guess just.

Maybe bigger picture, taking a step back the business has changed a bit.

Over the past few years, but kind of taking the guidance into consideration sales are really retrenching here.

And Chris you mentioned normalization and kind of consumer pressures, but just kind of bringing it back to the long term core sales target of low single digits. I mean is there something you've learned over the past year 18 months or so and that kind of changes your confidence and your ability to deliver on that target kind of longer term.

We kind of get through this period of disruption. Thanks.

I'll just read the first part of a very quickly the answer is no.

In terms of any particular.

Retailers issues affecting us so Chris yes.

Maybe just to build on Ravi is answer on the first one I think I think the retailer you are talking about is likely bed bath and beyond.

They represent less than 2% of the company's revenue.

And we are working very collaboratively with them in terms of kind of a win win go forward partnership, but I'll leave it at there, but it is not a significant part of the company's business.

On the long term algorithm.

I don't think theres anything that causes us to change.

The goal in the evergreen model of getting to long getting to low single digit consistent sustainable core sales growth and.

So we are still committed to that.

As our evergreen top line target.

Obviously, we've been impacted by a lot of the trends that we've talked about which has us off of that.

For this year, but but we very much are working hard to get back there as quickly as we possibly can.

I think the one thing that I guess when you look back look these last three and a half years they've had so many things right.

Had the pandemic than supply constrains inflation foreign exchange <unk> et cetera, So to me.

The Holy Grail is 2019 as the base here and the fact that in 2022, we were still.

Up versus <unk> 19 in the stack growth was 9% should really our brands remained strong I know, Chris and the team are really going to take it to the next level. So I think once the economy tons I do feel that the evergreen model that Chris and I are spot is still intact.

<unk>.

Great. Thank you so much and then just this might be a hard question to answer just given the uncertainty of the current environment.

Chris we've kind of seen when new Ceos come in <unk>.

Fuel outlook tends to be.

Somewhat conservative.

The team up for success and so I guess.

How would you characterize your confidence in this guidance today.

Do you feel like you've embedded in our flex should things deteriorate further from here either from a consumer demand perspective or inflation or if that's just.

Just kind of the confidence.

Kind of the worst it can kind of get and things could get better there can be upside to the earnings as we move through the balance of the year.

Yes, I think.

I'll, just give you sort of a high level.

Conceptual answer to that which is we've tried to reflect in the guidance everything we knew about the current environment, we tried to be realistic and.

And what we know based on the go forward.

<unk> and headwinds for the business this year and we did want to take a prudent bias.

On the core sales because our focus this year is to get cash flow back.

And.

And the best way to get cash flow back is not to overbuild inventory and we wanted to manage our supply and demand plan in a way that ensured that we had an above average cash flow year.

As we mentioned in the prepared remarks.

Seeing significant headwinds in terms of the tax rate, which is going from two 5%.

High teens rate, which is our kind of long term normalized operating rate.

We are seeing interest expense.

He is going to be up about $45 million this year versus last year.

And we've got the headwinds as we mentioned of incentive comp reset and foreign exchange. In addition to the the core sales deleveraging on the flip side we.

Feel very good about Ahmed.

The benefits that all of it is going to generate we built.

Our productivity our gross productivity assumptions are.

And we've embedded in as we've talked the Phoenix overhead savings and.

International pricing, along with carryover pricing and so.

I feel good about.

Sort of where we are based on what we know today.

Great. Thanks, so much and congrats to all again.

Thank you.

Our next question comes from Kevin Grundy with Jefferies. Your line is now open.

Great.

Good morning, everyone just to Echo my congratulations as well.

Question on project Fenix.

To start if we could.

It seems like another step along with all of us to drive efficiencies and reduce complexities in the organization, which was inherently more complex in many cases, perhaps too decentralized coming out of that yard merger, but at the same time, it's a lot of change in what is a very dynamic and challenging environment can you just comment on how the organization is handling all this change and why.

We should not be worried about a potential risk to result at least in the near term and then I have a follow up thanks.

Okay. Thank you so much look that's a great question.

I would say, we absolutely could not have done this three years ago.

And.

You may recall.

Chris and I started our engagement scores for about 37% to 45.

We went up to 75 wells faster arms.

Much consultants told us that take US Dan is we got there in two years and we are maintaining.

Maintaining that last year than we did in November so the organization's culture.

As a competitive advantage and very strong, but they could absorb it and this whole idea of <unk> is imbued.

And the employees and the way we handle that there was meticulous planning we started that Phoenix idea AD process should we started working on it through July and brought in layers of people systematically over time to give them ownership. Our communication has truly been outstanding for make sure.

People understood why we were doing it and finally the people that we had to exit we treated them with enormous dignity and respect and so much. So if you go back to Linkedin and take a loss, even though so exited our sharing for newell and want to succeed so I think that culture.

And it's been very strong people understand why we need to do this and I think its agenda broke all of it was a great test to see whether we could centralized distribution and that was very successful that gave us the courage to centralized manufacturing throughput sales all under our chief customer officer.

So I think so far the reaction of the organization has been actually very positive we've been concerned about the people FBR to make sure there.

I think the other part of it has been because of our previous over history. We've also made sure that his role clarity reduce duplication. So I think people are feeling even more empower so I'd say the chances of succeeding are very high.

Excellent. Thank you for that Ravi.

Chris probably for you just on margins just to kind of step back and make sure that.

We're not missing the forest for the trees here.

Sure.

Dealing with a lot in terms of volume deleverage FX cost et cetera, but longer term sort of thinking at Martin with margins versus your original benchmarks, but since then we will be doing project fuel. We have Amit now you have project Phoenix I think the commentary has been that there's no reason this cannot be a 17% to 18% EBITDA margin business longer.

Terms, you sort of look past this volume deleverage and so forth as we come out of the cycle is that still the view is that where investors should sort of.

Sort of anchor longer term expectations or potentially even superior to that now just given some of the programs that <unk> been up and then I'll pass it on thank you.

Yes, I think I think that.

There is no question.

That we are shooting for a much higher margin profile in this business and I think we have the opportunity to drive that over time.

Versus where we are today so.

I think that sort of a.

Our mid to high teens, EBITDA or EBIT margin is.

It is very much in our in our long term sights as we've talked.

When we did the best original benchmarking, we thought that gross margin, we ought to be targeting to get the company's gross margin up to 37% to 38% we've taken a.

A series of backward steps for a variety of reasons associated with fixed cost deleveraging inflation et cetera.

But I think.

Our guidance. This year is for gross margin to turn and start to move positive.

And.

And I think that trend we are very focused on driving that and then we continue to believe that.

Although we may have some deleveraging effect this year, we believe that.

Getting our overhead down to towards that 16%, 15%, 16% level.

Is the right thing as well so.

Think that that can yield.

Margins that are that are much stronger than where we are today and I think a lot of that continues to be in our control.

Although we are subject as we've seen in the short term to the macro trends, which means it's not going to be a straight line as I've said many times before.

Thank you.

And our next question comes from Andrew <unk> with Jpmorgan. Your line is now open.

Thank you operator, good morning, everyone and congrats to all.

I think I can speak to most of them.

One is on this call.

I think you saw that you did not sell those negative about the peso had when you announce the TQ earnings and later with project Phoenix can.

Can you help us bridge, a little bit of what's gone worse.

Brian December perhaps the consumer or the retailers.

That too.

Conservative stance on it.

It was on the inventory levels.

And also on a clarification on the commentary about the higher management compensation in 2023.

So if results materially lower in the year.

How can compensation normalized this year.

Thank you Justin.

Adjusting out some of the external factors within the compensation metrics I just want to see if we can bridge that to the commentary that you gave.

Despite those savings in the project Fenix, you pretty much will offset everything with labor inflation management company. If you can bridge those those components that would be super helpful. Thank you.

I mean, I'd see us final.

Last question first very quickly.

Essentially.

This year.

Our compensation is performance driven variable.

The great part and as an LTI component as well so we really because we didn't make our numbers, obviously that STI components are very low.

For 2022, and it also affected our LTI. So when we look at trailing three we stopped with the assumption that it will be normalized.

<unk> assumed the target numbers, so that is a big big jump.

Plus the wage inflation.

That is why we said the Phoenix was offsetting that.

Okay relative to the change.

Perhaps and what we're seeing from November I don't think I think this is the first time, we're giving guidance for this year.

And.

As we've seen the macro trends.

Continuing over the last few months as we saw where Q4 came in as we saw.

When we started off in January .

And as we got more visibility to the forecasting.

We felt like that helped inform our topline guidance on core sales growth for this year.

And as a result, we're expecting gross margin to be up this year I think the piece that.

That's offsetting that from a margin rate standpoint is really the overhead rate and thats really because of the.

The top line deleverage more than anything else.

Our overhead costs in total are relatively flat in dollar terms.

As we mentioned because of the wage inflation incentive comp and select capability investments that we're making which are offsetting the phoenix savings. So.

And then obviously the interest expenses moved with.

As the fed has raised rates and rates on short term borrowing has gone up.

And from a tax rate standpoint, we're planning for.

Sort of a full operational tax rate as I mentioned before okay can I just add something.

We've had a full year of training tool to look at what happened.

And really there.

Being a bit repetitive, but the forces of both retailer.

Stocking consumer Pollard acceleration all of that and then an impending or imminent recession. When you look at all of that I think it's really a consumer environment, which has softened. So I think we're just being prudent about that our brands inherently are where.

Continuing to strengthen our brands. So I would just look at that.

Chris has really been very clear that.

The major focus of training training training to get that cash flow back.

Thank you.

Okay.

And then last question will come from the line of Lauren Lieberman with Barclays. Your line is now open.

Great. Thanks, Good morning, everyone and Marc Hi, again.

Yes.

Just wanted to ask one quick question.

Just looking at the outlook for this year.

And how youre thinking about that.

It's still lingering destocking activity versus consumption.

If you talk about early on the car.

Paul did I Miss that quick clarity on that would be great if possible.

Yes, it's a good question Lauren.

And I would say that we do expect some lingering retailer destocking largely we expect that to be complete in the first half of the year.

And so clearly if you look at the.

What we're hearing in the back half of last year, but we don't believe that it's that it's fully over yet.

We do expect.

From what we're hearing that the.

The retailer Destocking will largely be complete by the first half of the year.

Although.

Hard to predict entirely but thats, what we are.

That's what we're planning for and that's what we're hearing from the major retailers that we interact with today, where we've just filed anything second half would be slightly better than the first half.

Okay, great. Thanks, so much.

Alright.

This concludes today's conference call. Thank you for your participation.

Today's call will be available later today on the company's website at IR Dot Newell Brands' Dot Com you may now disconnect have a great day.

Q4 2022 Newell Brands Inc Earnings Call

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